Thursday, September 8, 2011

Yesterday I reported on Oracle's and Google's replies to the court's suggestion of mediation in front of a United States Magistrate Judge. Formally, both parties welcomed the court's proposal, but only Oracle showed a true commitment to the effort by offering the participation of Oracle President Safra Catz and another senior executive. Google knew about that plan by the time it made its suggestion and mentioned it, but argued that Andy Rubin and General Counsel Kent Walker (not even Google's chief lawyer) would be the appropriate persons.

In my previous post on his subject I already explained that Rubin is not at a level with Safra Catz, and I suspected that Oracle might take issue with Google's choice. I also figured that the judge wouldn't like this. Later that day, Oracle filed a letter to the court in which it explains why Google's proposed negotiators aren't suitable for this purpose. I'll show you the document and then I'll quote it with in-line comments:

The Court's mediation plan is the last chance to resolve this case before a major investment of time and resources by the parties and the Court.

This is another way of saying: if Google won't pay up on that occasion, this case will very likely have to go to trial.

The Court's September 2, 2011 Order appropriately directs the parties to identify "top corporate executives" to participate in the mediation. Oracle believes the prospects for a successful mediation will be far greater if Google's executive-level representative is a superior to Mr. Rubin, who is the architect of Google's Android strategy--the strategy that gives rise to this case.

That sentence is a tough one: in plain English, it means that Rubin messed this whole thing up in the first place because hisdisregard for other people's intellecual property got Google in trouble in the first place, and now there's a risk that if he participates in those talks, he primarily wants to cover up his own wrongdoings rather than work out a deal that would be reflective of the economic magnitude of this serious issue.

Oracle probably assumes that the judge has seen enough documents (including deposition transcripts) in this case by now so he knows what Rubin's share in the responsibility is. In fact, the two most incriminating emails in the evidence record (as far as reckless, willful infringement is concerned) are one written by Rubin himself in 2005 and another one addressed to him in 2010. I discussed those emails on previous occasions such as in this post. Just like Oracle, Apple also blames Rubin personally for at least a significant part of the problem.

The suggestion in Google’s filing today that Mr. Rubin and Ms. Catz are comparable high-level executives merely because they both report to their respective CEOs ignores important differences in their roles.

I also pointed out yesterday that this isn't just about titles. Google doesn't have two Presidents, while Oracle does, and that shouldn't disadvantage Google. This is about more substantive issues, and Oracle gets to those in the following.

Mr. Rubin is a Senior Vice-President with responsibility only for Google's mobile strategy. Indeed, Google itself does not identify Mr. Rubin as a top corporate executive in its own public disclosures to investors. See, e.g.,http://investor.google.com/company/management.html.

In yesterday's post on this, I also linked to a page on Google's website, which has materially the same content concerning the company's top-level management, and found it odd that Google proposes a person not even listed on that page even though the judge asked for "the top executive officers"...

That previous passage is the most important point in my view. If they're going to sit together in court and negotiate the terms and conditions of a possible settlement, it's not just about whether they report directly to the CEO or not (which was Google's argument for sending Rubin). It's all about how much wiggle room and authority they personally have in order to take decisions on the spot that will be about many billions of dollars. Even the $2.6 billion damages claim Oracle brought (which has to be modified anyway) isn't really the most part of what this is about. We're talking about a possible license deal under which Oracle may receive something on the order of $15-$20 per Android device, retroactively and going forward for many years. With more than half a million Android devices activated a day now, do the math, that would be an annual run rate north of $3 billion (even if based on the lower end of the range, i.e., $15, and not even factoring in future growth).

So in order to settle this case, Google will have to send someone who can personally take decisions and make commitments of a very large scale. Oracle has clearly demonstrated that Safra Catz is in the position to do so. She negotiates major M&A (mergers and acquisitions) transactions for Oracle all the time. Those are the kinds of multi-billion-dollar deals that this settlement will amount to, at least in the long run.

When those negotiators sit in court, they must be able to dispose of many billions of dollars on the spot. There's no indication that Rubin can do that. I read reports according to which he wasn't even involved with the Motorola Mobility negotiations until that one was basically a done deal.

Additionally, Mr. Rubin represented Google in several past discussions between the parties. So has Mr. Walker, including at the unsuccessful private mediation referenced in the Court's Order.

This argument -- we need higher-level players than the ones who didn't get the job done before -- will likely make sense to the judge as well. He clearly wanted this last pre-trial effort to settle the case to be different fromt he previous ones -- different in terms of a greate chance of a successful resolution.

In light of the failure of these past attempts at resolution, Oracle believes it vital that both parties assign top corporate executives to the mediation. Oracle asks that the Court direct Google to assign a corporate representative to the mediation effort who meets this standard.

There you have it: Oracle says Andy Rubin doesn't meet a standard that Safra Catz meets.

Now the judge will have to decide. While he can disagree with Oracle and accept the appointments of Rubin and Walker, I doubt that he will do so. Those appointments are a clear indication of Google's unwillingness to put down some serious money to settle this dispute. The judge is not going to be amused. Therefore, he will probably tell Google that they have to try again. The judge could also conclude that mediation is a waste of court resources under these circumstances. Google would then be responsible for the failure of this dispute resolution effort, and Oracle would have the psychological benefit of having acted pefectly constructively and of having been, or at least appeared, committed to the maximization of the chances of success of a mediation effort.

Even though some may suspect that Oracle's demands are excessive and therefore blame Oracle, the documents in the record concerning mediation don't talk about royalty rates: at this stage it's all about the availability of high-level decision makers with the authority and wiggle room to decide about many billions of dollars in negotiations in which amounts can change within hours, if not minutes or seconds.

Oracle's letter gives the judge additional ammunition -- which he might not even need anyway -- to step up the settlement pressure on Google.

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About Me

Florian Mueller used to be an award-winning intellectual property activist. His 30 years of software industry expertise span different market segments (games, education, productivity and infrastructure software), diverse business models, and technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof, except that he is long AAPL.) He is now developing games for smartphones and tablet computers.